Minimum down payment hike will not cool down Vancouver and Toronto

An increase in the minimum down payment requirements for government-backed mortgages will not cool down Canada’s hottest residential real estate markets and would only serve to price out first-time buyers even more, according to an industry executive.

In Garry Marr’s report for the Financial Post, Canada Guaranty chief executive Andrew Charles argued that the proposed down payment increase from 5 per cent to 10 per cent will fail to remove the pressure of non-stop price growth in Vancouver and Toronto.

“We take the view that increasing, or further penalizing, the first-time home buyer does zero or has minimal impact on price valuations in two specific markets,” Charles said.

Average prices of detached homes in Canada’s two most in-demand metropolitan markets have long broken the $1-million limit for government-insured mortgages.

“The first-time home buyer market in Canada represents approximately 30 per cent of the entire housing market,” he explained. “The insured segment of the market has a $1-million cap in terms of maximum.”

In addition, Charles stated that it’s not only first-time buyers who will be affected by the hike, but the weaker performing markets as well since majority of the activity in Vancouver and Toronto stems from conventional mortgages (20 per cent or greater down payments).

“An increase in down payments will negatively impact the Calgary, the Edmonton, the smaller urban centres where we’ve seen prices values moderate and in some cases decrease,” Charles said.